Payments might be one of the most mature and well-funded segments in fintech, but an investor at iZettle backer Index Ventures says that we’re closer to 10% done on the disruption curve than 90%. Speaking at the #execfintech conference in Frankfurt this week on a panel called “Is that it or can we expect more innovation in payment?” VC investor Timm Schipporeight pointed out many payments companies – including Adyen and Revolut (both Index companies) – are built on existing infrastructure like Swift, Visa and MasterCard.

Asked if the industry was 10%, 20% or 90% finished innovating, he said: “We’re probably more 10% done. It’s important to note that ultimately most of payment innovation happens on existing rails,” says Schipporeight. “We have seen relatively little fundamental innovation around how payments actually work. A lot of the innovation has happened more on the front or on consumer side rather than infrastructure side.”

Speaking on the same panel, GoCardless co-founder Hiroki Takeuchi said that as long as bank accounts remain the primary store of value, it’s difficult to change anything significantly in the backend in terms of of payments moving between institutions unless all the banks buy in to it: “Collaboration is necessary for innovation to happen.”

Volumes and mousetraps

One of the biggest challenges for companies in the payments space is that it tends to be a low margin business, hence why there are relatively few big global players – so are there still chances for new entrants? Yes, says Schipporeight, but it’s either about having a niche where you can add specific value to the merchant or customer, or else it’s a massive volume game “and both are very hard to do”.

So what does Index look for? “We always look for a very specific mouse trap: either reducing the cost for merchant or consumer and thus improving the bottom line for the merchant or improving the customer’s take.”

Without a sharply defined marketing strategy for the merchant or consumer side, they will otherwise just be competing with deep pocketed banks, so there needs to be a specific proposition. He says Index also looks for companies that strike a balance between building agile solutions and totally outsourcing features to third parties with a thin interface on top.

Where will monetisation come next?

So where are the opportunities for making money in payments in the future? Data monetisation is one: using data about where people spend their money to offer suggestions. A bank knows exactly where their customer is spending all their money, so could they begin to offer recommendations, suggests OptioPay co-founder Marcus Börner who says that’s a tangible touchpoint where innovation could happen. He says making money will be tough in the future the industry needs to “get smart” on how it can generating cash from payments.

“Knowing where people spend their money is wonderful data to offer them things that could be beneficial,” says Börner, speaking on the same panel. “It’s about lead generation – a bank can identify better opportunities for spending and get paid by someone who has an interest in acquiring new customers. The key is not to make it too commercial and more beneficial so they don’t feel like they’re being pushed.”

As Takeuchi points out, however, this is of course a very delicate area from a privacy, regulatory and security point of view. “You’d need to be careful about how the data is used – it has to be about benefits not monetisation otherwise you could be going down a pretty dangerous path,” he says.”

Marcus: people are used to everything being free so we need to get smart about generating cash in this field and it will be tough for everyone in payments to make money in the future.